Making sense of the white paper’s finer details

As with most government policy, the devil is in the detail. Dan Ebanks argues we must focus on those finer points – or face the consequences

David Cameron has heralded the Open Public Services white paper as the beginning of the ‘decisive end of the old-fashioned, top-down, take-what-you’re given model of public services’.

The paper goes on to claim, repeatedly, its central mission to improve the quality of public services. Indeed, a number of the ideas set out in the paper – increasing the provider mix, payment by results, the importance of bringing more innovative models to market, the need for quality – are to be commended.

For the critical analyst, the devil is in the detail. Without a clear focus on that detail to inform debate, there is a significant risk that the public services market will be dominated by increasingly fewer and increasingly larger providers.

Is this a problem? In principle, increased competition should mean lower costs. Economies of scale are to be sought in the commissioning of local public services. The coalition does realise that if the market mechanism is to achieve efficiency, the contract model has to change. In this respect, there is a qualitative break with the past in terms of the New Labour modernisation agenda.

The paper recognises the value, in principle, of shifting emphasis away from paying providers fixed fees or for the volume of their activity (the latter typically had very high marginal costs attached) towards paying for the outcomes they achieve. Again, theory tells us this should drive down costs.

What about providing value for users of public services? What about bringing innovation and quality services to the market? When it comes to people-centred services, quality – ‘getting it right first time’ – is often more important than scalable solutions.

When it comes to people-centred services, quality – ‘getting it right first time’ – is often more important than scalable solutions.

Being able to respond to the needs of vulnerable client groups, knowledge of the local context, making the most of local networks, the rapid and flexible use of resources: these factors are crucial in delivering quality services, crucial in capturing efficiency gains.

It can be done. It is being done. Consider the achievements of East Devon and Stroud housing teams. During a period of massive demand and significantly less resource they have processed benefits in half their target time. The extra capacity means they can respond to increased demand and begin considering how to innovate their service model further.

Elsewhere, local authorities are applying the principles of co-design and co-production as they renew their service models, working with smaller, more nimble and responsive providers who themselves are able to work with the community, as part of the community. Lambeth is developing its cooperative model, with a number of ‘early adopter’ pilots. It is scrutinising each service area for opportunities to co-design and co-produce sustainable local services.

Other local authorities are breaking new ground. Much has been made of sharing services, particularly in the back office. Now, frontline children’s services are being shared by Kingston and Richmond, a service area traditionally riven by political sensitivities.

The collaborative approach between buyer and seller has found its ultimate expression in the joint venture vehicle, a new model for managing risk and reward, epitomised by Croydon’s local asset based vehicle.

And consider the joint working between Catch-22, Turning Point and Serco at HMP Belmarsh in south London. The coalition must encourage these types of service models into the market.

The collaborative approach
between buyer and seller has found its ultimate expression in the joint venture vehicle, a new model for managing risk and reward.

The paper was also an opportunity to set out an explicit strategy that drew and exploited the link between public sector reform and local economic growth. In London alone, £8.9bn was spent on ‘third party’ providers in 2009/10. And as the white paper itself says, nationally £42bn was spent by local government on external contracts. Rather than thinking in terms of spending billions on the supplier base, government should be shifting mindsets towards thinking about how these billions can be invested in local businesses, local neighbourhoods, local assets and local networks.

Commissioning and procurement teams need to manage their supply chain, rather than their suppliers, if innovative and quality services are to be brought to market. This would see a more equitable sharing of risk and reward across the supply chain, led and managed by the prime contractor.

Too often, the smaller organisations suffer from weak bargaining positions and become over-exposed to risk. Also, prime contractors may ‘cherry pick’ the easy to deliver results and leave the harder and less profitable results for the sub-contractors.

The Merlin Standard, introduced by the Department for Work and Pensions, sets out principles and behaviours in support of a fairer spread of risk and reward, but it has no teeth. The coalition could learn from one local authority procurement lead who will be asking all his prime contractors to collaborate during the procurement process on identifying savings in their supply chains.

Not all local authorities have such proactive officers. Teams can be as small as two or three individuals. There are a range of different models and approaches. There tends to be high turnover of staff. Procurement is seen as a tick box exercise, a set of compliance issues, instead of the strategic, market making function that it should be.

The localism bill missed the opportunity to ensure local authorities are duty bound to commission on the basis of social and environmental criteria, rather than just economic.

How ready are local authorities to commission on social and environmental value, to measure the benefits that accrue from such commissions, to operationalise payment by results? How ready are the commercial teams to strike new deals and generate new delivery vehicles?

At the legislative level, the localism bill missed the opportunity to ensure local authorities are duty bound to commission on the basis of social and environmental criteria, rather than just economic.

Cash-strapped local authorities can be forgiven for commissioning on the basis of price alone. What, though, are the implications for small, innovative providers who cannot compete on price but may better deliver the valuable services vulnerable client groups need? How do you judge genuine value for money in a commissioning context that is still cost based?

And we have extolled the virtues of payment by results: providers should be incentivised to produce outcomes specified within the contract.

However, providers with limited cash flow – including those without access to debt finance – will be disincentivised from entering a market with such a payments system. Another local authority procurement lead has said to us that such a system would, ‘not create the sustainable economy we want. When the local economy is ready, then we can make that link’.

This article has tried to avoid the elephant in the room – privatisation. It has, instead, attempted to show that, for the laudable ideas in the white paper, there are challenges involved in making them happen. If these are not met, innovation and quality will suffer, and large providers will benefit.

And without a sufficiently sophisticated approach to risk and accountability, as well as the failure to identify the government as ultimately responsible for the delivery of public services, the evidence does suggest a potential scenario where privatisation occurs ‘by default’.

It is worth reflecting on the issue of risk. As assets and services are dispersed from central government to local, and from local to private and voluntary sector, risk – often captured through bureaucracy, regulations, governance processes and contractual arrangements – will be distributed more widely and to new parts of the public and civic sphere. Where will the risk go? How can it best be managed?

Due to the very thing it is trying to achieve – the opening up of the market and the removal of the ‘public sector monopoly’ – the local authority will lose control of certain decisions and services. It must ensure it develops an approach to risk and accountability that is steeped in local democratic governance. It must also ensure it has the market intelligence to manage risk in this new delivery context.

Other political cultures have different approaches – consider the strategic intervention of the Germans and Japanese. They tend to emphasise the importance of stability and market share, and of reducing the exit of innovative, creative and local offerings.

It would be too simplistic to reduce the privatisation debate to left and right, Labour and Conservative. The reality is that the British political culture is predicated upon a particular approach to the market making and management. It is a culture that reinforces a responsibility to simply lift barriers to entry and to disengage from the process. In terms of generating efficiency, this is certainly optimal strategy – but in the long term, and in a mature market place. And in the context of people-centred public services where quality leads to efficiency, it creates a false economy.

Other political cultures have different approaches – consider the strategic intervention of the Germans and Japanese. They tend to emphasise the importance of stability and market share, and of reducing the exit of innovative, creative and local offerings.

As the market matures – particularly in terms of financing, access to market data, risk and supply chain management – the regulatory approach changes. While political cultures evolve in their own unique ways, policy analysts should be ready to learn from other systems.

The white paper contains a number of good ideas on how to bring innovative and quality services to the market place. The devil is in the detail – and the detail must inform a positive and active debate, one that ensures we do not slide into a de facto privatisation of public services.

• See New Start’s In Focus report on the Open Public Services White Paper